7 ways Comcast is killing the cable killers

We’re at a flashpoint in the evolution of television, and the battle lines are getting clearer. We have the pay TV providers who want to keep their high-dollar cable packages going even as broadband has the potential to break their bundle of channels. We also have content companies, some of whom are owned by the cable providers and others who are independent. All are trying to make the most money from their content even as digitization opens up new markets and risks associated with piracy.

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Finally we have new content companies and delivery options that include big names like Apple(s aapl), Netflix(s nflx) and YouTube(s goog) to smaller names like Funny or Die and Aereo. And in the middle is the consumer. All consumers want is their television — whatever they want to watch when the want it. Also, they’d like it on multiple devices and most are happy to pay for this content either directly, through a subscription or by watching ads.

But this market has incredible distortions thanks to a variety of ownership structures, business models and how much control they have over the deliver of content into the home. And no one has more power and is taking as active a stance in this business as Comcast(s cmcsa). From its early days of blocking P2P traffic to the most recent allegations of traffic prioritization let’s look at Comcast’s historical, current and future efforts to protect its business.

Implementing data caps: Soon after it’s brush with the FCC over P2P blocking, Comcast decided more subtle ways of protecting its TV business were in order, and so it implemented a 250 GB per month data cap. It did so without a meter and with a promise that as web usage increased it would revisit the cap. Surprisingly, even though web usage has increased, it has stayed true to the 250 GB. Customers do have a meter though.

The Level 3 peering fight: In 2010 Level 3 Communications (s lvlt), the middle-mile Internet provider that is also a content delivery network for Netflix, accused Comcast of seeking an additional payment from Level 3 in order for the CDN to deliver content from its network to Comcast subscribers. In effect Level 3 was saying Comcast was trying to charge it more to deliver its CDN traffic. The timing was interesting since Level 3 had recently signed up to carry Netflix traffic. Was it a form of peering extortion to hurt Netflix? To this day we have no idea.

Protecting its Xfinity traffic over the Xbox (and Tivo) from its cap: This combines the limiting power of the broadband cap with a “protected” class of content that happens to be set aside for pay TV subscribers by Comcast over certified hardware. I’ve explained why this is problematic, but the short answer is, the cap creates an incentive for a user to turn first to Comcast’s Xfinity service as opposed to an over-the-top provider.

Prioritizing its own traffic over other traffic at the packet level: Two recent blog posts illustrate Comcast’s efforts in this manner. On Saturday Bryan Berg the founder and CTO at Mixed Media Labs wrote a very clear explanation of how Comcast was tagging its packets for the Xfinity service as opposed to other traffic. On Monday Dan Rayburn, an expert on streaming media, published a similar report that also noted Comcast’s prioritization plans and noted that the FCC and the Department of Justice might find Comcast’s actions troubling giving the conditions on which it approved the Comcast NBC-Universal merger. I’m sure they’ll get right on that.

As a side note, what Comcast is doing here isn’t all that different from other ISPs that try to deliver IP video. For example, AT&T(s t) at one point basically allocated a set amount of bandwidth on its pipe for its U-verse television, leaving the rest for the “Internet.” But if the Internet pipe became congested, traffic didn’t cross over into the reserved U-verse section. I have no idea if AT&T is still managing its traffic that way today, however.

Will FCC Chairman Julius Genachowski help save OTT TV?

It’s secretive plans with Verizon: This hasn’t happened yet, because the FCC has yet to approve the deal that would net Verizon (s vz) spectrum owned by the cable companies and would create a Joint Operating Entity that would share technology. Opponents of the deal are concerned that any approval allowing the creation of this JOE will in effect give the two companies tacit permission to collude on technological barriers for over the top providers. Others are worried they could come up with some kind of deal that allows Xfinity traffic or Comcast’s own subscription video service Steampix to run on Verizon’s mobile network without hitting caps.

It’s possible influence on making Hulu authenticated: Something else that hasn’t happened yet, but should be looked at very closely. Comcast now owns a portion of Hulu thanks to its purchase of NBC-Universal and rumor has it that it may be pushing to have Hulu become a service available only to pay TV subscribers. Just like NBC’s full, real-time viewing of the Olympics will also be limited to pay TV providers.

So there you have it. Comcast is ready for the fight with over the top providers and it’s playing to win. Sony seems to think it’s not even worth fighting over. Unless regulators get involved, I bet fewer customers will cut the cord, or see real television competition from OTT providers. Of course, I may be wrong. The web does have some good content.

Collusion? Among different businesses? Ridiculous! They don’t establish gasoline prices by agreeing on price points. lol Just like John Walton realized that there were better profits if the lumber mills worked together instead of undercutting one another nothing has really changed. And all the BS about competition is just that – BS!

Hey they also have a decent product. Good value for family of four. On demand content via their internet site or their back end site. Content you can’t get from internet services. DVRs too for further time shifting.

They do need competition or perhaps should be regulated like a utility in areas where their internet service is the only game in town.

I predict: not unlike channels of television, the cable-co’s and studios will push internet-based content as apps. We see it now with Hulu, Netflix, Crackle, HBOGO, etc, but you have to be on their pipe/subscription.
Dark will be the day You-tube sells out (goes like ebay and integrates IP/ads/subsciption and You-Tube Deluxe for “premiere” content providers… shows that are awesome, don’t want to be part of “Hollywood”, have production value but not raping the viewer or lowering the viewers expectations/intelligence with commercials.)
We will see the Tv of Babel with the net, relabel of the distribution model, and maybe, folks will get up from their screens and walk out side!

Thanks for the nice summary of Comcast’s strategy. You state that the teevee “market has incredible distortions.” But for that to be a meaningful statement, don’t we need some consensus on what an truly free market would be on these networks that we have? Is your conceptions of a market along the lines of a grocery store, or an entire mall, or something along the lines of an Apple store? It is hard (for me at least) to see why a wide variety of ownership structures, business models or levels of control would automatically lead to a “distorted market.”

Given these new networks and the ad hoc approach we’ve taken to regulating (or not regulating) them, I’m not really sure it’s even possible to talk in terms of whether or not a market is distorted or effectively competitive in a sense that promotes the pubic interest.

Brian, great question. I’ve been thinking about this a lot. I do think the Internet threatens to bring about an a la carte style of shopping, and that value for those channels or maybe just shows would result in a lower-overall value for the content industry. The distortions come in when people who don’t care for Real Housewives don’t pay for Bravo, and stop subsidizing those who do care. And that spans the entire ecosystem.

Comcast subscriber xFinity voice traffic isn’t counted against the cap either — but Skype’s traffic is. How is this new managed video delivery service any different from the managed voice service? The precedent was set with OTT voice back in the early Vonage and Skype days.

I started off thinking the cap was reasonable, but since more people are hitting it and usage is rising, I think its probably becoming less reasonable as time goes by. But yes, creating services that bypass the cap are even worse.